On Our Radar

Growth Businesses Fall Short for Cisco Systems

Networking hardware giant Cisco Systems(NASDAQ: CSCO) reported its fiscal first-quarter results after the market closed on Nov. 16. The company's results came in at the high end of its guidance, but Cisco expects the second quarter to be much weaker. Growth areas such as collaboration and the data center suffered declines during the quarter, while security continued to post robust growth. Here's what investors need to know about Cisco's first-quarter results.

Deferred revenue rose 12% year over year to $17 billion, driven by subscription-based software.

Cisco's second-quarter guidance fell short of expectations.

Revenue is expected to decline by between 2% and 4%, excluding the SP Video CPE business.

GAAP EPS expected between $0.42 and $0.47, while non-GAAP EPS expected between $0.55 and $0.57. For the second quarter of last year, non-GAAP EPS came in at $0.57.

What management had to say

Cisco CEO Chuck Robbins summed up the quarter:

We had a good quarter despite a challenging global business environment and we performed well in our priority areas. We are leading our customers in their digital transition by providing them with highly secure, automated, and intelligent solutions in the ways they want to consume them. Our innovation pipeline is robust and we are well positioned for the future.

Kelly Kramer, CFO of Cisco, discussed the shift to a subscription model:

We executed well in Q1 delivering profitable growth, and saw strong adoption of our subscription-based and software offerings as we transition our business to a more recurring revenue model. We will invest in key growth areas and continue to focus on delivering shareholder value.

Looking forward

One thing hurting Cisco's results is its ongoing shift toward a subscription business model. The security segment grew revenue by 11% year over year, but deferred revenue soared 39%. While collaboration revenue slumped 3%, deferred revenue jumped 14%. Cisco singles out the growth of software-as-a-service within these segments as one reason for the discrepancy.

With only one growth business, security, posting growth during the first quarter, and with guidance for the second quarter calling for a revenue decline, the difficult environment Cisco finds itself in is taking a toll on the company.

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